The United Arab Emirates announced Tuesday that it will leave OPEC effective May 1, stripping the oil cartel of its third-largest producer and further weakening its influence over global oil supplies and prices.
The possibility of this happening had been a rumor for some time, as in recent years the UAE had felt constrained by production quotas that it considered too low, meaning it was not allowed to sell as much oil to the world as it wanted.
“Having invested heavily in expanding energy production capacity in recent years, the big picture is that the UAE has been itching to pump more oil,” Capital Economics wrote in an analysis. “The ties that bind OPEC members have loosened,” he said, particularly after Qatar withdrew from the grouping in 2019.
Regional politics probably also influenced the decision. The Emirates have recently had increasingly frosty relations with Saudi Arabia, OPEC’s largest producer, over political and economic issues in the Middle East, even after both were attacked by Iran — another OPEC partner — during the war.
No immediate impact on global oil markets expected
The withdrawal of the United Arab Emirates from OPEC will not necessarily have immediate effects on the markets. That’s because global supplies are severely constrained by the war in Iran, which has closed the Strait of Hormuz, a sea lane through which a fifth of the world’s oil supplies are transported, including much to the Emirates. On Tuesday, Brent crude, the international benchmark, was trading above $111 a barrel, or more than 50% above its pre-war price.
OPEC accounts for about 40% of global oil production, but its market power had already been declining in recent years as the United States increased its production. While Saudi Arabia had been producing more than 10 million barrels of oil a day before the war, the United States pumps more than 13 million barrels a day.
US President Donald Trump has been a constant critic of the cartel during his two terms in the White House.
The United Arab Emirates, which joined OPEC through its emirate of Abu Dhabi in 1967, was producing about 3.4 million barrels of crude oil a day before the United States and Israel launched their war against Iran on February 28. Analysts say it has the capacity to produce approximately 5 million barrels a day.
In its announcement on Tuesday, broadcast by state news agency WAM, the United Arab Emirates said it would also exit the broader OPEC+ group that Russia had led to try to stabilize oil prices.
“This decision reflects the UAE’s long-term strategic and economic vision and its evolving energy profile, including accelerated investment in domestic energy production,” the UAE said, adding that it would bring “additional production to the market in a gradual and measured manner, in line with demand and market conditions.”
The move eliminates one of the few OPEC members with the ability to rapidly increase production, said Jorge Leon, head of geopolitical analysis at Rystad Energy.
“A structurally weaker OPEC, with less excess capacity concentrated within the group, will find it increasingly difficult to calibrate supply and stabilize prices,” he noted.
Saudi Arabia and the Emirates, increasingly at odds
Saudi Arabia and the Emirates have competed over economic and regional policy issues, particularly in the Red Sea area. Both countries joined in 2015 in a coalition to fight Houthi-backed rebels in Yemen. However, that coalition fell apart in late December, when Saudi Arabia bombed what it described as a weapons shipment destined for Yemeni separatists backed by the Emirates.
As tensions have risen in recent months, Saudi broadcasters long based in Dubai, the economic center of the United Arab Emirates, have retreated to the kingdom.
“This exit from OPEC fits the UAE’s need for flexibility with major energy consumers, including a future relationship with China and a more competitive relationship with Saudi Arabia,” said Karen Young, senior researcher at the Center on Global Energy Policy at Columbia University.
Although Saudi Arabia and OPEC had no immediate reaction, Emirati Energy Minister Suhail al-Mazrouei insisted that his country’s decision was not due to any dispute with its Persian Gulf neighbor.
“We have been working together for years and years. We have the utmost respect for the Saudis for leading OPEC,” al-Mazrouei told CNBC.
However, the Emirates sent its foreign minister instead of its ruler to a meeting of Gulf Arab leaders on Tuesday in Jeddah, Saudi Arabia, hosted by Saudi Crown Prince Mohammed bin Salman.
The Emirates’ push to likely pump and sell more oil also comes after it hosted the United Nations’ COP28 climate talks in 2023, a conference that ended for the first time with a commitment from nearly 200 countries to move away from fossil fuels. But the Emirates as a whole still plan to increase their production capacity in the coming years while boosting more clean energy at home, a move criticized by climate activists.
“Energy demand is going to go up and up and up,” said US Interior Secretary Doug Burgum at an Abu Dhabi oil conference in November. “Today is the day to announce that there is no energy transition. There is only energy addition.”
His Emirati hosts gave him wide applause.
